BSP sees BOP deficit at $11.2 B, GIR at $93 B

Published December 9, 2022, 4:07 PM

by Lee C. Chipongian

The Philippines will likely report a higher balance of payments (BOP) deficit of $11.2 billion at the end of 2022, more than what was anticipated due to persistent external risks, the trade gap and lower financial account flows.

The Bangko Sentral ng Pilipinas’ (BSP) previous BOP deficit projection announced last Sep. 16 was $8.4 billion. As of end-October, the shortfall was already at $7.12 billion.

The BSP on Friday, Dec. 9, also revised its outlook for the country’s gross international reserves (GIR) which it now expects will end the year lower at $93 billion versus its previous forecast of $99 billion just two months ago. The latest GIR stood at $93.95 billion as of end-November.

BSP building and logo/Reuters

In an online press briefing, BSP officials said the overall BOP which is a summary of the economic transactions of a country with the rest of the world for a specific period, will continue to be in deficit positions. The external risks “have intensified further” such as inflation pressures which led to a “rapid and synchronized tightening of monetary conditions.”

Global developments have also weakened the peso vis-à-vis the US dollar and this prompted the BSP, as part of the Development Budget Coordinating Committee, to revise the exchange rate assumptions to P55 to P59 in 2023 and P53 to P57 from 2024 until 2028.

Under the BOP for 2022, the current account deficit projection is almost unchanged at $20.5 billion compared to September’s estimate of $20.6 billion. As of end-September, the current account shortfall stood at $17.8 billion, the highest on BSP record, according to BSP Senior Director Redentor Paolo Alegre Jr. of the Department of Economic Statistics.

Both the goods exports and imports growth estimates were also untouched at four percent and 20 percent, respectively, while the services exports and imports trade were revised higher to 16 percent and 18 percent. Also under current account, the BPO receipts’ growth projection remained the same at nine percent.

However, travel receipts are expected to grow higher by 400 percent, more than the previous projection of 250 percent, because of stronger-than-anticipated recovery in the travel earnings amid easing of mobility and travel conditions.

The BSP said financial accounts under BOP is seen ending at $8.2 billion this year but it was a lower estimate than the $11.1 billion announced in September. The net foreign direct investments (FDI) for this year is expected at $8.5 billion while net foreign portfolio investments or hot money is projected at $3.5 billion. The remittances forecast remain at four percent growth for both 2022 and 2023.

“The lower projected financial account flows (was due to) hawkish US Fed (which) could adversely impact on appetite for emerging market assets,” said BSP OIC Managing Director Dennis Lapid of the Department of Economic Research, who presented the latest BOP projections on Friday. As of end-September, the financial account registered higher net inflows of $10.3 due to lower net outflows of portfolio investments and higher net inflows of other investments.

For next year, Lapid noted a “more subdued BOP outlook amid softer global and domestic growth prospects for 2023.”

The BSP sees $5.4 billion BOP deficit in 2023, this was lower than what they estimated in September of $2.5 billion. They also downgraded the current account shortfall to $19.9 billion versus an earlier forecast of $20.1 billion.

The GIR, however, is expected to remain at the $93 billion even for 2023. Lapid said this was a conservative estimate and that the “country’s stable and adequate stock of international reserves is expected to support investor confidence”. The previous GIR projection for 2023 was $100 billion.

Under the current account, the BSP maintained next year’s goods exports and imports growth projection at three percent and four percent, respectively. They also raised the growth estimate for services exports to 15 percent but kept the services import growth at eight percent. It is the same for BPO receipts and travel receipts which are maintained at five percent and 150 percent, respectively.

As for the financial account, the central bank is eyeing $13.4 billion, lower than previously announced of $16.5 billion. Net FDI for 2023 is projected at $11 billion, lower than previous forecast of $12.5 billion. Net hot money is seen at $5 billion, also down from an earlier estimate of $6.5 billion.

The BOP by end-2022 is equivalent to 2.8 percent of gross domestic product (GDP) and in 2023, it is 1.3 percent of GDP.